Let’s Get Nerdy with the State of the Union

I don’t know what you guys did last night, but Johnny got home late, and we curled up on the couch with some leftovers and watched the State of the Union together. We’re doing our boring, vanilla, personal-finance-geek image no favors by being so candid about our nightly festivities. To be honest, I almost fell asleep twice (third trimester, folks!) during the speech, but there were some interesting financial takeaways that we wanted to get your thoughts on today.

This really isn’t intended to be a politically-charged discussion at all, but here were a few topics that were presented at the State of the Union that we thought might be relevant for a lot of us:

Two free years of community college for qualified students

Tax credit for working married couples with children

Childcare credit increase to $3000 per child

Employer paid time off requirements for sick leave and maternity leave

THE PROS

Hooray for paid time off for mandatory sick leave and maternity leave! Our country is pretty much the worst when it comes to maternity and paternity leave. We’ve got a long way to go. I swear paternity leave should be our biggest men’s rights issue (is that a thing?) of our time. It’s precious family bonding time and so so so important for me to have Johnny home with me during that transition. Only a week or less is just ridiculous.

We like the idea of offering free community college for those who work hard, get good grades, and graduate on time. Having accumulated a significant (to us) amount of student loan debt, we’re proponents of anything that lowers the burden for future college students.

THE CONS

Nothing in life is free. And unfortunately, the free community college and other initiatives geared toward helping college students comes at a cost. Ironically (and infuriatingly), the President’s proposal calls for an end to tax-free withdrawal on 529 college savings accounts. Huh?! Currently, you can put your post-tax income into a 529 plan and let it grow tax free until it’s withdrawn for qualified education expenses only — no loopholes, no gimmicks, just a good way for hard-working, middle-class families to prepare for college tuition costs and avoid debt. Under the new proposal, bye-bye tax savings. Your already-taxed money would be taxed again. So minus a one-time state tax perk, the 529 would basically become a worthless savings vehicle. We’re not big fans of taxes, period, but helping one group of college students at the expense of others is absolutely mind-boggling.

The other initiative we felt iffy on was giving an additional $500 credit to parents who both work outside of the home. We’re all about making things easier for working parents (been there, done/kinda still doing that), but it feels a bit discriminatory to parents who have made an equally difficult decision to stay at home and live off one income. Many families with a stay-at-home parent that we know are barely in the middle class, and this kind of initiative implies that stay-at-home parents wouldn’t benefit from tax relief. It also incentivizes one type of work over another equally admirable type of work. And don’t get me started on parenting being a form of “work.” Maybe it’s because it came from a room of mostly male lawmakers, but it just felt insulting. Girl power.

Hopefully we can keep today’s discussion from getting too controversial or Jerry Springer-y, but what are your thoughts on President Obama’s State of the Union proposals?

59 Comments

Not a big fan of cutting out the tax-benefit of 529s, especially since that was the major tax-advantaged vehicle I was planning to use to fund my kids’ college. LOVE the community college initiative. Also the maternity/paternity leave (honestly, it’s about freaking time the US mandated paid parental leave) and child care credits. Would be great to get the capital gains tax raised for high-income earners, but I know it’s never going to happen.

The idea of having two free years of community college is by far the best thing on this list (well for me, with no kids, just yet…). Knowing that others wouldn’t have so much student debt because society is trying to help them get ahead in life makes me feel a little lighthearted today.

I think debt incurred while attending a CC is fractions of a percent when compared to debt incurred while at a ‘University.’ I would be surprised if this proposal would even put a dent in the student debt problem the country faces.

Full disclosure: didn’t watch the speech, only read/hear about proposals second hand. I see a few problems with the ‘2 free years of community college’.

1. Most students who attend community college (hi.) also work full time jobs while going to school and cannot take more than 1 or 2 classes at a time (hi again.). What does ‘2 years’ mean then? Two calendar years? Two years worth of full time credit? If it’s the calendar year, then I would have used up my two years worth about four years ago and I’d still be right where I am, paying cash for tuition, turtle-ing across the finish line. If it’s the later, then great, let’s move on…
2. Total cost of 64 hours (roughly two years or one Associate’s Degree) of tuition at the CC I attend runs about $55/credit hour. That’s $3,520. Thank you, Uncle Sam. Now what about books/fees? I’m still on the hook for those which means I’m left to cover roughly another $1-2k to cover those costs. Still a great savings, let’s keep going.
3. Assuming I don’t take any classes that I don’t need (cause no one *ever* does that and schools would *never* count on that to boost income), or that I don’t fail anything and have to repeat a course, I’ve gotten my “Free” Associate’s Degree and can now transfer to a 4-year school. YAY!
4. Now tuition has gone from $55/credit to $500/credit (using figures from the State school I transferred to). IF I pick one major and stick with it and don’t fail, I will need to take roughly another 56 hrs to graduate, which is about $28,000 in tuition total. Plus books and fees. So let’s just say for funsies, that it’ll take you $32,000 to get your B.A. with Uncle Sam footing the first $3-4K of the bill for you.

So? What now? Well, if we assume that every person applying to the 4-year would either take advantage of grants or scholarships, and would pay cash for the remaining ‘half’ of their tuition, forgoing loans, then great. We would have millions of college educated people ready to head out into that job market, debt free. I think we can all be realistic in assuming that’s not going to be the case. Students will still take out loans. Tax payers will foot the bill.

If the Federal Government were offering everyone ‘who’s willing to work for it’ a $3K discount on a $30K car, would we think it was a great idea? Obviously a car is very different than an education, but hopefully you see my point.

It seems that those most likely to benefit from this would be the 4-year Universities, who would then have a whole new batch of customers (some of whom would start at a 4 year and not finish) beating down their doors with a brand new shiny student loan. What about the community colleges? Would receiving ‘free’ money incentivize them to raise tuition rates? How would a new group of people attending community colleges effect the quality of education?

Community college is already dirt cheap. It’s the 4-year schools that are crushing students. It’s a band-aid on a shotgun wound, and the only thing it will do is create a lot of people who have an Associate’s Degree and a student loan looking for work in a job market that’s already moving onto Master’s Degrees. It all sounds great in a speech, but in reality I don’t think it would work, at least not to the degree it’s intended to. Tuition is simply too expensive at the B.A. level and higher. Period.

I don’t have enough energy to comment on the rest of the topics… Great talking points. As always. =)

What TT said is probably true that it wouldn’t help our country’s student debt problem that much, but I do think there are a lot of people that this proposal would open the doors for. It would be a very cool option for high school graduates to have!

Wait, what? If it encourages more students to do two years at community college before transferring to a university…that cuts the cost of college in half. How does that not help our country’s student debt problem?

Our existing student debt problem isn’t stemming from community colleges. I like the idea because it’s one less hurdle that stands in the way of many students STARTING college that otherwise wouldn’t attend. And for those particular students, they’ll (hopefully) cut their debt in half. But the number of students that will use CC as a stepping stone AND qualify seems like a drip in the overall student loan crisis bucket.

In Tennessee, our governor proposed the 2 free years at community college last year. And, man oh man, has it been a hot mess so far. To my knowledge, it’s to be funded by our lottery, which up until this point has been funding our “Hope Scholarships” which you could receive by going to any in-state college. So, the plan cuts the scholarships down for anyone that chooses to attend a 4 year university instead of a community college. I just graduated in May from a 4 yr TN university and watched my friends struggle with transferring their community college credits over to the university – which basically means it was time wasted (and state $$ wasted!). You can read more about the TN plan here: http://www.usatoday.com/story/news/nation/2014/04/16/tenn-free-community-college-plan/7783315/

You know…the more states that start having their higher ed public schools (community colleges, state colleges, state universities) work together…the easier it will be to transfer those community college credits. Every single one of my credits from the community college transferred to my university No Questions Asked for full credit. However, that might be because I did the work in advance knowing I was going to a four year next and ensured that I was taking classes that would transfer. Much easier to do in a state which promotes this. Hopefully, TN will get on board with that next step and you will see it get better.
But then I’m biased. I loved my two years at the CC – class sizes of 25-30 instead of the 200 students my friends had in their Intro level classes. I got a much better education and for much cheaper than my friends. Plus I actually graduated in only four years while every single one of my friends who went straight into the 4 year plan…took at least 5. That – to me – is the biggest waste of all.
Okay, off my soap box now. Kelsey, I’m watching the TN plan with interest, crossing my fingers the kinks get worked out and it does become a worthy choice.

I like the community college plan because it is based on the academic merit of the student rather than the savings ability of their parents.

I went to community college and had no difficulty transferring to a four year school. The key was finishing my AA first. People who tried to transfer without finishing an AA or an AS had trouble matching class numbers for credit.

Sure, community college is a small drop in the student loan bucket now. But make it free? Demand will increase. People who planned to start at 4 year schools will be incentivized to switch and do two years of CC first.

I dont think the issue is free community college, I think the issue is that people are and able to take out such a large amount of loans to pay for (expensive) schools. I went to 2 years at CC, went for free since I played a sport(even though I didnt love it)–I couldve gone to a 4 year and be in an insane amount of debt(for me), I think the sl crisis is the lack of knowledge in parents and teenagers.. Knowledge is everything.

I will say I wish that our maternity leave was better–I work for federal govt, when we have kids, I have to use all of my earned time off(sick leave and annual leave), if I didnt have any of that(i just happen to plan ahead, not everyone does that) I would be without pay the WHOLE entire time…

I work for the Feds also, and am always surprised with this fact- so crazy to me! I’ve been with an agency for 7 years and I have never been able to save up enough (approx 240 hours) leave to cover something like that because I have to use it on my son and for his needs. Always astonished that our government doesn’t already have that in place, in some capacity…
But then again, it’s the government- I shouldn’t be that shocked 😉

I hear ya on the maternity leave. I had to use up all of my sick leave, too. And then my maternity leave was only partially paid for the first month. After that, no pay. It drives me crazy that our nation is one of the worst for maternity and paternity leave!

I’m generally as left leaning as they come but I’ve never understood why there’s this entitlement when it comes to maternity leave. Why does having a child mean that the government or your employer should pay you to not work for 3-6 months? Or a year?

By all means, have as many kids as you like and take off as much time as you think is best for your family. But when you make a choice to not work…then I think you’re making a choice to not get paid.

I think the last thing this country should do is discourage parenthood. What you’re proposing would does just that. I’ll ignore the societal reasons for now, but all you need to do is look at Japan’s slumping birthrate to understand why that’s a bad idea. Who’s footing the bill for Medicare, Social Security, and ACA? Those babies that people have.

I don’t expect an employer or the government to cover my full wage while I spend time with my newborn child for 3-6 months or a year. I’m asking for a couple weeks. For all the entitlement and employer-enforced programs this country has, I’d hope child rearing for the first few weeks of a child’s life is a worthy one.

If we have a birth rate problem, okay. This in some incentives to have kids I guess. But we don’t. And I think if you want to take 6 weeks off, whether it’s to take care of a baby or write a novel or do volunteer work or watch tv or rescue dogs from burning buildings then that’s awes me. Save up six weeks of living expenses
and go for it! Having children is a choice. Prepare for it.

I’m not sure if you have children, but if you do, I think you’d understand why you can’t equate child birth to writing a novel or traveling. “Having children is a choice” — so are you against WIC? Welfare for parents who “chose” to get pregnant? The issue here isn’t that it’s a “choice.” It’s that as a country and society we should celebrate parenthood and make that initial family bonding a priority.

Anyway, it’s been fun sparring, but this is probably an issue where we’ll just have to shake hands on it and continue thinking we’re each right.

How many future students would benefit from tax advantaged 529 plans? How many will take advantage of free CC? In my estimation the first is much greater than the latter. College is not a purely dollar and cents decision. Culturally ‘going off to college’ is a big thing in America–how many movies are there of kids in freshman dorms or fraternities? People feel like they HAVE to go to college to get a good job and keep up with the Joneses, so they HAVE to take out these loans. Free CC sounds great, but I don’t think it really solves the problem.

I 100% agree on your second Con point: “…it feels a bit discriminatory to parents who have made an equally difficult decision to stay at home and live off one income.” I’m not sure I could put it better.

We watched last night, too. I am pretty iffy on the free community college all together. I didn’t know that is where the money comes from, and I feel like that is TOTALLY unfair to the people who have scraped and saved for their own kids tuition savings. I’m trying to learn more about it and be a little more ‘politically savvy’ when it comes to taxes and finances. I just don’t know how I feel about that issue.

I love the idea of 2 years of community college covered, but with some requirements, in terms of academic performance. If higher education is more accessible to everyone, it would really strengthen our society, and that benefits everyone.

Not trying to get Jerry Springer-y, but I want to offer a dissenting opinion. I think higher education is already very accessible (especially at CC), because loans are available to all. Not saying that’s the way to do it (cash is best), but it’s not inaccessible in our current environment. Additionally, whose to say that higher ed necessarily strengthens our society and benefits everyone? I know plenty of people with advanced degrees who have struggled to find jobs and end up with mounds of student loan debt and no great prospects. Certainly didn’t benefit them. It’s a very common belief that (higher) education is always, always, always a good thing, but I simply don’t agree with this. There are lots of ways to become a contributing member of society that do not include having a college education.

I can’t feel sorry for people who chose to obtain advanced degrees, taking out hefty loans along the way, when there was no real guarantee of employment that would justify those degrees. That sounds like a personal choice that they made that was not clearly thought through. Community colleges offers many career track programs, which is one aspect that makes them so essential for low income individuals. No doubt that someone can be a contributing member of society without a “college education”, but having an education that makes them employable and moves them into the workforce- how is that not a good thing for our economy and society as a whole?

Great thoughts, Ashley! Dissenting opinions are more than welcome. You make some really great points. Education is available to all thanks to loans, but I do like the idea of rewarding students based on good grades and graduating on time. Our country has a very strong focus on the importance of higher education right now, and while I’d like to see the focus move away from that, too, unfortunately, a degree is currently a necessity to be considered for many good paying jobs.

Thanks for sharing, you make some great points! I don’t know how I feel about 2 free years of community college. I don’t like the idea of 529 plans being taxed more. I think there just has to be a better alternative for controlling student loan debt. Maybe a cap on big tuition increases?

Totally agree… there’s gotta be a better solution for our student loan debt problem, and I think setting limits on tuition increases would be a great place to start. Taxing a 529 plan makes no sense at all… and I don’t think that proposal has a chance of passing, so 529s are still good to go for now!

I totally agree with you on just about everything. The 529 tax issue just infuriates me. Especially since I live in states where I don’t even get a tax advantage on the state level. I am thrilled with him bringing of the issue of maternity leave, although you do make a good point about paternity leave. Mr SSC got 1 day with company – ie, the day I gave birth. So after giving birth to my children well into the evening hours – he was technically expected back at work at 6am the next day. So he took vacation time.

Anyhoo – The $500 credit for dual income families seems odd. Did he give a rationalization for that? You make a great point about stay at home moms or any single income family… why don’t they deserve it just the same?

Paternity leave is so ridiculous in this country. I mean, the maternity leave is bad, but paternity leave is almost nonexistent! If I had my way, Johnny would be home for at least a month after our baby is born :).

I think the rationalization for the $500 credit is that it’s assumed that if a family has only one working parent, then they must be doing fine financially. And while that’s a nice assumption, it’s simply not the case a lot of the time.

Well, I think he’s got some good ideas and some not so good ideas. The change to the 529s is frustrating. But who knows if anything will change………..
Our maternity/paternity and sick leave rules are unbelievable. I’m glad he addressed those.

For me, Im just thinking (for everything) “Where is the money coming from?!?!” The country is in crazy crazy debt…shouldnt that be the one and only focus? I dont know if that is a stupid question, but for me, my finances need to be in order before I can plan my food, my activities, entertainment, rent, etc…
Im perplexed haha.

Is the proposal for the 529s that all the withdrawals will be taxed, or just the growth? It’s not double taxation if the original contributions aren’t taxed, but if all the w/d get assessed a tax that would stink. It seems to me (with no research done) that more people could benefit from the free cc than from the 529 savings – I suspect many many families don’t save in advance. Remember you travel in rare circles of savers!

Good clarification… by double taxation, we’re just saying that it will be taxed twice, even if the second time is the growth. The reason that’s a problem is the entire point of 529s is for them to be advantageous. If the growth was taxed (the only thing that makes them advantageous), they could lose up to 39% of their growth to taxes, making them almost pointless. I wish there were a way to have both free CC and continue with the current 529 savings plan taxes. With the president and the senate/house at odds, I don’t think anything will be changing, but maybe someday soon!

Hi guys! Well Joanna, with me being a Canadian I really can’t feel that I’m too qualified to comment on your CONS issues but I would still like to provide me 2 cents worth on your comments relating to your 529 plans.

Here in Canada for years now we’ve had similar plans – RESPs. I won’t bore you with all the fine details about how these plans are structured or operate except to make a few points, relevant to your comments. Like you we set up plans for our 2 kids when they were babies. We contributed each year in after-tax dollars into each plan. However, unlike you, when our kids were ready to go on to higher education (college, uni, trade school, whatever), the RESP money that they each received for this education was taxable, but in their name.

Nowt here are my points – only the plans’ investment earnings were taxed (not our original after-tax original deposits – so no double taxation here). And since our kids were both in very low income tax brackets (they being students with quite low, if any, incomes), the tax that they would have paid would have been very low or, as was mostly the case, totally non-existent. So the tax issue was a no biggie for us back in the day.

Now I’m not sure if the proposed tax proposal for your 529s will operate differently but I just thought I’d comment. On all your other comments I’m in agreement with you.

So Joanna – on an unrelated note – how big’s the tummy getting these days?

I’m not sure how it would work. The plan called for just taxing the interest, not the original contribution, upon withdrawal. However, I’m not sure who would be on the line for that. Either way, at least for now, I don’t think the plan will pass, so we’ll continue to contribute to a 529 worry free. And I’m 29 weeks tomorrow, so the belly is front and center these days!

J,
My I suggest you watch the documentary “Inequality for All.” It is truly mind boggling to see how much wealth the ” 1 Percent” have accumulated in our times. It is almost a crime while others struggle working multiple jobs for minimum wages. I do not believe taxing the wealthiest is going to make any middle class person become rich. It will only help them survive and overcome challenges. I think two years of community college for free is such a great idea for kids who have good grades and live in poverty. Raises have been far and few for the middle class and they really need a break not a hand out. We are such a powerful great nation yet workers have less vacation time and cannot even spend time bonding with a newborn.

Our nation has quite a few kinks to work out. I really wish our lawmakers would focus on getting this country back on track, rather than playing politics and padding their own bank accounts. Here’s hoping things get better soon!

I agree on most everything you said but since student loans really strike a chord with me, I’ll comment on that. The President’s proposal on 529 savings plans is the opposite of what the country needs (thank goodness it won’t pass). An increase in personal savings and tax advantages to go along with it are one of the best ways to temper this growing student loan crisis (along with some other things like eliminating the income limits on student loan interest deductions, ya know, for those who are actually trying to pay back their loans with a decent salary!). But ultimately, the widespread availability of student loans from the federal government is what is driving tuition prices up so quickly. If the government should limit anything, it’s how much students are allowed to take out. I don’t want to limit kids’ opportunities to go to school but more emphasis should be placed on scholarships than loans. Free community college is a nice concept (for a stringent level of high school achievers) but the costs will come in the form of higher taxes, perhaps on other students. I will encourage my kids to go to community college first to figure out what they want to do! Good post and good discussion!

I couldn’t agree more. I love that student loans are available — I wouldn’t have been able to attend college otherwise — but they’re available at irresponsible amounts. And the truth is that we don’t all need to be able to go to the most expensive schools to still receive a great education. And if fewer of us were choosing those schools, perhaps their tuition would lower. Our current system is a vicious cycle, one that I hope changes soon.

Joanna, I think you need to revisit the conclusion you made that increasing the tax credit for married working parents is discriminatory against married parents where one parents decides to stay at home. You should note that there is a marriage tax penalty for married couples who make similar incomes, so in essence two working married people making similar incomes pay more tax than a married couple where one spouse makes less than the other.

Also, there are working couples with children who, in spite of both parents working are not even in the middle class, or barely holding on as well.

Some two working parent families also don’t make enough on two incomes, even make less than the median income in the US, and cannot even entertain the option of a parent staying at home and still be able to meet the basic needs of their families.

Further, I am not sure if you have ever had to pay for child care while both you and your husband worked, but in our case, we spend $14,000 and are only eligible for a maximum of $600 in child care credit.

An extra $500, frankly, pales in comparison to these marriage penalties for some working parents, like my family. I would still welcome the extra credit however.

What this credit implies, though, is that married couples who have a stay-at-home parent don’t need a tax credit. And that’s why I’m against it. I know several families who can’t entertain the option of a parent staying at home, yet they still do it. And the government shouldn’t discriminate against them because they made that choice.

That’s not to say that I don’t think two working parents deserve a credit; I do. I just don’t like what the government is implying by leaving out those who don’t have two working parents. As far as the marriage tax penalty goes, I don’t think parents are choosing to stay at home as a form of tax relief.

I need to watch a recording of this! I unfortunately forgot about it this week. Out of the topics you brought up, the 2 free years of community college for qualified students would be a great addition to our higher education program. I think it would be amazing for a lot of people, and would hopefully lessen the amount of student loan debt.

I disagree with the idea of free community college. I’m not against people trying to improve their lives and do want people to have opportunities. However, I am against the government’s involvement in student lending because it actually increases the cost of education for everyone.

Since all federal loans are backed 100% by the government, that makes the risk 0% to the lender. Thus, there is zero fear of not being repaid. Therefore, lenders will continue to give and give and give loans for schools because they know they will get there money back. I think we would all take a guaranteed return on our investment!!

Since lending has tons of people offering to pay, schools have no incentive to lower the costs of education. So, every year more and more people take on loans and every year schools raise the cost to attend. In my opinion, if the government removed the 100% backing of loans, then yes attendance would drop, and schools would be forced to lower (or at least maintain) costs to attend.

My son turns 2 in two weeks and I shudder to think what a semester of school will cost in 16 years will continual 6% growth every year.

Totally hear ya. I think the two issues are separate though. This is looking at footing the bill (no loan involved) as a reward for excelling. As far as the 100% government backing, that’s tough, but I agree with you. If students or families cannot attend certain schools, they shouldn’t be given a loan. There are enough schools and enough good schools at much lower costs that the lending process should be akin to buying a house now. There will still be grants and scholarships and all the other assistance programs available for students who have extra needs and/or prove their merit in the classroom, but otherwise, students are going to have to choose schools that force them to borrow within their means.

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